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What is an Investment Syndicate?

In business there are many terms and so many options it may seem daunting at times. Many of you may have heard of an investment syndicate but may not know what it is. This article summarises the meaning behind the word, what it entails and some of its pros and cons.

Let’s first break down the meaning of the words; the word syndicate originates from the French word for trade union; “syndicat”. The word originates in turn from Latin (as much of modern language does). It originally meant caretaker.

A syndicate is a popular way to finance property development.  Getting together with a group of people who wish to invest in a project can raise substantial amounts of money. Each syndicate member will wish to benefit from the rewards of their investment, whilst spreading the risk amongst a number of people. There are two main types of Investment Syndicate partnership: a ‘working’ partnership where the partners participate in the development and a ‘sleeping’ partnership where partners just invest the money.  Sleeping partners tend to be the most common members of a syndicate. However, always make sure you keep all members regularly informed on how projects are developing. If you have no capital, you can simply contribute your labour.

A syndicate can be formed for a single project and dissolved on completion of the project, or it can be a ‘perpetual’ syndicate which allows money to be carried forward into additional development projects.

A simple way to form a syndicate is to approach friends and relatives. Alternatively you can advertise in the local press for investors. However, make sure you check that any potential investors are prepared to take a risk and have capital available.  Syndicate members cannot join or leave the syndicate whilst it still operates, but they can transfer or sell their position to another person. A syndicate does not have any particular legal format. You can get a solicitor to draw up an agreement or you can simply write your own or agree verbally.

How many people you get to join the syndicate is up to you.  Usually five to eight members is a good idea, although there is no upper limit.

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